Remote Banking Bill Payment Exceptions Are a High Cost to the Industry

Today home banking bill payment becomes the norm rather than the exception. Today, the consumers writing checks to pay a bill is a large number but declining because remote banking and bill payment continues to be on the rise, as in many situations, banks continue to offer this as a free. This service enables the customer to make a payment to anyone, to their utility company or their gardener or babysitter, whether there is an electronic connection or not. In some instances payments are routed through the ACH network or an electronic gateway provider such as MasterCard RPPS. However, in some cases when a customer has identified a payment to be routed electronically, it can be sent as a paper check. How can this happen and what can be done to minimize these occurrences?

 Banks continue to work hard, when possible, to ensure the payment is routed efficiently and accurately to an electronic Receiver Bank. Even if the biller is capable to receive payments electronically, why does it convert to a paper remittance? In some situations, when the account mask is inaccurate and the payment fails the edit check, the Bill Payment Service Provider will convert that transaction to paper and route it to the biller’s lockbox. However, in this case, the paper is sent as a single check without a remittance slip to the biller’s lockbox.

 According to a recent NACHA study, they assessed this issue, when home banking bill payments intended as electronic drop to a check remittances and it is expensive. In fact it costs the industry approximately $800 million dollars a year. The expense not only includes the mail expense to route the check, but since this remittance is not accompanied with customer details there is an expense at the biller location to research the customer and ensure the payment is accurately posted. This could cost that banks have to staff for, especially since the customer expectation was that the payment was routed electronically, allowing just a few days to post to their account.

 In April 2014, NACHA decided to address this issue and launched The Bill Payment Exception Program. (BPE) The BPE implementation recommendations for bill payment Originators and biller Receivers to automate the bill payment exception process (according to NACHA, bill payment exceptions are defined here as the biller’s inability to properly apply credit to a consumer account due to missing or incorrect information transmitted by the Originator).

 With the BPE, both bill payment Originators and Receivers may opt-in to have these exception payments originated and received via a CIE transaction in the ACH using the BPE convention. The data in the BPE addenda record is designed to provide billers with additional information to help with posting. In addition, the process provides an opportunity to automate the exception process through the ACH Network (backed by the NACHA Rules) as these payments would then be received electronically through a single channel.

 To provide feedback to the bill payment originators regarding missing or incorrect customer information, the process further calls for billers to then use the Notification of Change (NOC) transaction to provide the bill payment Originator with corrected information to be used in future transactions. Or, the transaction will be returned in the event the biller still cannot post the credit. Either way, the bill payment Originator will receive a response to the CIE/BPE.

 This is one approach to address bill payment exception items from an industry perspective. Previously, Originators and Receivers would partner to address exceptions one at time. This was labor intensive and was not consistent. A manual process to alleviate and electronic solution, has limited benefits as well. Will the NACHA solution have a significant impact? Time will tell but an electronic way to deal with a problem steeped in paper is a good move.

 I recall the days when I worked with an Electronic Bill Payment and Presentment company and was tasked as one of my responsibilities to increase the electronic delivery rate from 28% to 58% resulting in savings of $3 million dollars. With a small team, we manually cleaned up the bill payment warehouse and worked with banks and bill payment gateways to accepts new customer masks etc. We worked hard and long to increase the electronic rate to 58% when the industry was expecting higher. This is a major thrust to move home banking forward but the challenge is the Receiver Banks and Originators must work together. Let’s key an eye on how things will progress! Look out for more information on this in the future.

 Wayne Brown, the managing partner of The Walker Group, has several decades of experience in financial services. Before starting The Walker Group, he held roles at product management roles at Citigroup, Deutsche Bank and Fidelity Information Services. As his role in leading The Walker Group, Wayne works with FinTech companies to expand both their product and client reach through his extensive network of senior financial executives. His interest on financial matters continues to grow through his blogging and research. For more information contact Wayne at wbrown@walkergroupnyc.com